The Kremlin’s invasion of Ukraine three years ago has reverberated through the global energy industry; unravelling Europe’s decades-long reliance on gas imported via pipelines from Russia, and triggering a global squeeze on gas markets that unleashed a cost of living crisis still felt today.
The prospect of a peace deal has many wondering whether the energy industry could be upended once again; this time giving way to a market serving the interests of the US president hoping to broker the deal.
Global oil and gas markets have wasted no time pricing in the impact that a peace deal between Ukraine and Russia, one of the world’s biggest energy producers. Christoph Halser, a senior analyst at Rystad Energy, said prices are already falling across Europe and Asia as traders contemplate “a swift comeback of Russia gas”.
Although it would be politically unpalatable for those who argue that Europe’s dependence on Russian gas enabled the Kremlin to weaponise its energy supplies, for many in Europe the opportunity to reverse the economic hardship triggered by its absence will be tempting.
Imports of Russian gas via pipes accounted for around a third of European gas demand in 2021. Before the start of Moscow’s war in Ukraine Russia provided just over half (55%) of all the gas consumed in Germany, which relies on gas for more than a quarter of its energy.
Europe’s biggest economy has scrambled to replace Russian supplies through a rising appetite for liquefied natural gas (LNG) delivered by tanker, but this is more expensive. As a result Germany has also seen a sharp drop in gas consumption overall as heavy industry’s output has slowed in the face of higher energy costs.
It emerged in January that European officials were already considering whether Russian pipeline gas sales to the EU could be restarted as part of a potential Ukraine peace deal. The suggestion sparked a backlash among countries loyal to Ukraine, according to a report in the Financial Times, but proponents of the idea argue that a return of Russian gas could help ease high energy prices across Europe, which have contributed to the cost of living crisis.
Halser cautioned that although a peace deal could “open the door for Russian gas” the chances of a quick return of supplies via pipelines “remains questionable”.
“European leaders and Ukrainian officials have voiced concern over being excluded from the negotiating process, leaving both likely facilitators and takers of Russian gas alienated,” he said.
Donald Trump, who is brokering the deal, may also have good reason to maintain Europe’s newfound appetite for US LNG. Trump has promised US oil and gas company executives that they will be free to “drill baby drill” – and it would be a clear disadvantage to the US if its eager…
Read More: Redrawing of global energy markets map set to heap benefits on US | Energy
